Can Investors Still Win Big On China's Google Or Facebook? Probably Not

Investors who missed out on the biggest gains from U.S. innovations – internet search engines, online job listings and cell phone popularity, for example – have traditionally found fantastic consolation prizes in the shares of companies that do similar work, later, in Asia. But can investing in a Google (NSDQ: GOOG) (GOOG) or Facebook of China still pay off? It’s trickier now.

In recent years, China’s slight step behind the U.S. in certain services has allowed U.S. investors a sort of second shot at this country’s best plays. By 2010, for example, the triple-digit annual share price gains were over for Google, its market cap stuck around $200 billion, but Baidu (NSDQ: BIDU) (BIDU) was just beginning to take off on its way to a nearly $40 billion market cap for Baidu . Shares of the Chinese internet provider are up 184 percent in the past two years, compared to Google’s mere 3 percent gain.

U.S. investors made a lot more money in China Unicom (CHU) in recent years than Verizon (VZ), including a 46 percent gain this year. And 51job (JOBS), China’s biggest online job opening lister, rose for great gains long after Monster Worldwide (NSDQ: MNST) (MWW) had its heyday.

Lately though, these late-adapter plays on Chinese ADRs have been a mixed bag for investors. Renren (RENN), China’s closest thing to Facebook, launched one of the worst U.S. IPOs of the year. The company remains wildly popular, but investors are worried about competition and costs.

Longtop Financial Securities, which made financial software for Chinese companies, was delisted in August for accounting irregularities. NetEase.com (NTES), a major online gaming and email provider in China, was up 22 percent in 2011 but appears to be losing steam. Hackers gaining access to customer accounts recently haven’t helped, nor has the lack of success in a luxury online store the company launched. SouFun (SFUN), a Chinese internet provider that went public in the U.S. in 2010, was down more than 19 percent last year.

Worries about tight credit and accounting scandals hurt the group at the beginning of the year. Then troubled export markets helped things tank further. Chinese consumer consumption pales in comparison to that of Europeans and Americans, so when worries about the spending power of those foreign buyers rise, the market caps of a lot of major Chinese companies drop. As a group, they were down about 20 percent last year.

The situation makes the traditional plays in this arena look a lot riskier now. Ctrip.com International (CTRP) and eLong (LONG), Chinese travel site companies that might interest investors hoping to replicate Priceline.com growth of the past, have lost 36 percent to 47 percent in the past six months alone.

Still, there are signs that China isn’t quite as dangerous as investors are treating it now. While no one is brushing off the trouble global economic slowdowns could cause China, strong manufacturing numbers recently suggest that Chinese companies aren’t quite as vulnerable to a Eurozone meltdown as many had feared. And while China’s GDP growth isn’t as rampant as it was a couple of years ago, that 9.1 percent forecast for 2012 still looks phenomenal compared to the rest of us. Citing low valuations and optimism about profits, Morgan Stanley recently picked the SPDR S&P China ETF as one of its top emerging markets buys. After all, if one company really can survive as the Facebook or Priceline of China, now might be a really good time to buy it.